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"If a signatory of the WTO is found to be in violation of the WTO Agreements, the WTO is able to compel the nation to change its laws or practices so as to conform with the Agreement." Critically Discuss.
When envisaged at the
Bretton Woods Conference in 1944, the aim of the World Trade Organisation was
to liberalise trade in a manner that would facilitate reliance between the
signatories to an extent that would prevent future warfare as had been experienced
in the years preceding the Conference.
Part of this reliance came in the form of trade agreements that ensured that
countries would not create barriers to trade that would inhibit the
liberalisation efforts that had taken place and create a difference of
competition. However, the question arises as to what mechanisms the WTO had in
place to enforce the agreements against a breaching country. The two prominent
mechanisms through which enforcement is sought to be achieved are retaliation
and compensation; the basis for both being found under Article 22 of the
Dispute Settlement Understanding.
To deal firstly with
the matter of retaliation. The idea behind retaliation is that a country which
has been on the receiving end of a breach, for example where one country has
increased tariffs and contravened an agreement by doing so, that country is
able to retaliate by equally raising its tariffs. The idea behind the
retaliation remedy is to make it unattractive for a signatory of the WTO to
breach an agreement as adverse consequences will follow. However, there are
several problems with this remedy. Firstly, retaliation does not recognise that
there are differences between the market sizes and relative powers of different
countries – therefore, a less economically developed country retaliating
against an economically developed country is not likely to deter breach. To
remedy this imbalance, the DSU also allows for cross-sector retaliation.
Cross-sector retaliation works by allowing a country to retaliate in other
sectors where retaliation in the breaching sector would not have the desired
preventative impact. The problem with such cross-sector retaliation is that it
involves innocent sectors, causing both uncertainty and in actual fact
prohibiting trade – the sole thing the sanction is supposed to prevent.
The other tool
available to the WTO to compel a signatory to conform to the WTO agreements is
compensation. However, there are equally problems in relation to compensation
that make it unattractive. Firstly, compensation is not to apply in retrospect
but will only apply after a Dispute Settlement Body hearing has been made up
until the point at which the signatory conforms again – the idea being that
this will encourage quick conformity. However, it instead encourages the party
in breach to prolong the dispute settlement process in order to continue the
breach and do so knowing that compensation will only be awarded after the
decision of the DSB.
Whilst the WTO does
have some mechanisms to compel conformity, it would seem that they are both
counterproductive and have significant loopholes which render them less useful
than it would appear on first sight.
Richard Peet, Unholy Trinity: The IMF,
World Bank, and the WTO, (Zed Books, 2003), Chapter 2.
Marco Bronckers and Naboth van den Broek, ‘Financial Compensation in the WTO’ (2005)
8(1) J.I.E.L. 101, 102.
Carlos Vazquez and John Jackson,. ‘Some Reflections on Compliance with WTO
Dispute Settlement Decisions’ (2001-2002) 33(4) Law & Pol.Int.Bus. 555, 564.